Bankers group pitches cellphones as digital wallets

A mobile phone embedded with a computer chip is used to buy things at a kiosk by tapping it on a reading device at Tokyo's Shinjuku train station. Monday's CBA framework is a small step toward a similar system in Canada. (Itsuo Inouye/Associated Press)

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Similar systems already in place internationally

Canada's biggest banks have unveiled a blueprint for turning cellphones into mobile payment terminals, a key step in a process that could revolutionize the way Canadians pay for purchases at retailers.

The Canadian Bankers Association published guidelines on Monday for how financial companies and large telecom firms might collaborate to turn smartphones into mobile payment terminals with the swipe of a hand. At 133 pages, the document covers a lot of ground. But it's a broad sketch of where the mobile payment industry is headed.

"These guidelines are intended to create a path to help all market participants move forward in developing mobile payment solutions," the bankers' group said in a release.

The gist is that the rules could pave the way to allow bank account information from credit and debit cards to be embedded into smartphones in the near future. Thus far, it's a purely voluntary and theoretical blueprint, but it does offer a tantalizing glimpse of a world where Canadians can pay for their purchases by waving their smartphones in front of a reader and having whatever they've purchased automatically paid for.

Growing market

Many Canadians already manage their finances and transfer money via their smartphones by using apps to move money in and out of accounts. The ability to pay for items by swiping the device at the point of sale is a logical extension of that.

"[It's a] step into the future. One would hope it would bring us up to the standards of the rest of the world," said Bruce Cran, president of the Consumers' Association of Canada. "Consumers should welcome this innovation."

Others are less impressed.

"We're patting ourselves on the back, but Canada's really a laggard in mobile payments," technology analyst Iain Grant of the Seaboard Group says. "We have lots of other sorts of payment systems in our wallets, so we haven't had a huge push to find new ways of paying for things."

Canada stands in stark contrast to systems in Asia, Africa and Europe, where consumers have been able to pay for certain purchases with cellphones for several years. Grant suggests the push is only now coming to Canada because telecom companies see a way of making money from it.

"As we stop paying for landlines, and as we begin to pay less for data, they need to find a new way of making money," Grant said. "They need to find a way to tap into those trillions of dollars worth of transactions to make up for other revenue losses."

Whatever the reason, a widespread cellular payment system is likely still years away in Canada. But the details unveiled Monday allow for information as diverse as loyalty programs, transit passes, transaction receipts and even the ability to return items to be embedded into a smartphone's SIM card.

Such technology — known as near field communication — is already in place on a piecemeal basis across the country, although it's far from ubiquitous in the current generation of Canadian cellphones and payment terminals.

'We remain worried that another fee-palooza will soon hit merchants.'—Dan Kelly of the CFIB

Grant notes the irony that part of the reason the technology isn't more widely accepted already in Canada is because many Canadians are locked into long-term contracts for cellphones that lack the ability to process NFC transactions.

For its part, the Canadian Federation of Independent Business offered a tepid welcome to the idea. Canada's largest lobby group on behalf of small merchants, the CFIB is in the middle of a high-profile fight with credit card companies over the fees they charge to process transactions.

"Our experience with the introduction of premium credit cards saw massive new fees for business with zero consultation and widespread confusion for merchants," CFIB spokesperson Dan Kelly said. "While we are pleased that the industry is actively reaching out to small business and welcome the new guidelines for mobile payments, we remain worried that another fee-palooza will soon hit merchants."

Indeed, it's not clear who's going to pay for the new technology, if and when it becomes a reality. Upgrading point-of-sale terminals to work with NFC technology could be an expensive and lengthy process. "After having just done that in the last year or two, retailers are going to be loath to do it again," Grant notes.

Many Canadians have smartphones, and most have some sort of bank account. But they're not usually with the same organization, so seamlessly bringing together the companies that handle payment credentials and those that handle mobile hardware has been a sticking point. Monday's blueprint is the industry's first attempt to bridge that gap.

Attempts to implement such a system elsewhere have seen modest success. But the opportunity for Canadian telecommunications companies to create new revenue by storing and managing more personal information is a strong impetus for the idea in Canada.

Privacy has been another hurdle, as policymakers want to ensure that every transaction should only have access to the minimum information required to perform its primary role. "That is to say, the default should be to protect consumer and merchant data," the bankers group said.

Last year, Rogers Communications Inc. filed paperwork to start a bank with the expressed purpose of focusing on credit and mobile-based payments. "The licence, if granted, would give us the flexibility to pursue a niche credit card opportunity to our customers should this make sense at a future date," the company told CBC News at the time.